Three forces are driving modern economies - finance, knowledge and social capital. It is no coincidence that all are intangible: they cannot be weighed or touched, they do not travel in railway wagons and cannot be stockpiled in ports. The critical factors of production of this new economy are not oil, raw materials, armies of cheap labour or physical plant and equipment. These traditional assets still matter, but they are a source of competitive advantage only when they are vehicles for ideas and intelligence which give them value.

When the three forces of modern economic growth work together the economy hums, and society seems strong and creative. When they are at odds, as they have seemed to be for much of the last twenty years, society seems in danger of fragmenting and becoming more volatile. The task is to combine finance, knowledge and social capital in a virtuous circle of innovation, growth and social progress. There are three ways this could be done: by organizing society around the leadership of the market, the community or knowledge and creativity.

Those who believe that self-interest and the search for profit are the main motive force for economic growth argue that the market and private companies should primarily organise the economy. That was the argument of the new right for much of the 1980s and 1990s: that society should be rationalised, restructured and ultimately revitalised by unleashing self-interest and extending the market. The more people looked after their income, housing welfare, education, health, the better-off we would all be.

This free-market argument is still influential but has run its course. A free-market society would put us at the mercy of the impersonal, capricious forces of the financial markets, widen inequalities under-invest in the long term and the public goods on which we all rely. The rise of the knowledge economy will force us to revise many of the claims of the new right which have passed into conventional wisdom, for example that something's value can be read from its price, as set by an open market.

In the 1990s, most critics of free markets have chosen to prioritise social capital, often with the ambiguous but superficially appealing rallying cry that we should strengthen our sense of 'community'. The argument that society should be organised to maximize a sense unity comes in many guises. Stakeholder economists, such as Will Hutton, argue that we need to regulate market capitalism by enforcing upon companies obligations to communities and employees as well as shareholders. Communitarians, such as John Gray and Amitai Etzioni, argue that individuals can only realise themselves within a strong, supportive community. They share the belief that global capitalism is the enemy of community and that we need to make our societies more caring and compassionate.

The communitarian critique of market capitalism is superficially appealing but eventually disappointing. Strong communities can be pockets of intolerance and prejudice. Settled, stable communities are the enemies of innovation, talent, creativity, diversity and experimentation. They are often hostile to outsiders, dissenters, young upstarts and immigrants. Community can too quickly become a rallying cry for nostalgia; that kind of community is the enemy of knowledge creation, which is the well-spring of economic growth.

This battle between market and community has been central to the politics of the 1990s. The clash between market and community encouraged a string of attempts, none entirely convincing, to reconcile them: Tony Blair's and Bill Clinton's Third Way, Gerhard Schroeder's radical centre in Germany, Lionel Jospin's hope to create a market economy but not a market society in France, George Bush Jnr's compassionate conservatism, were all attempts to marry the market and community, efficiency and social justice. Governments of the right and the left have continued with broadly pro-market policies, while also strengthening social institutions.

This middle way is better than the market extremism which went before. But too often this course, tacking between the demands of market and community, is reduced to a balancing act. Politics with a compromise built into its core unsurprisingly leads to piecemeal, cautious reform: one step forward, half a step back. It does not produce a new vision of how society should be organised, nor a radically new kind of politics, with a new uplifting, inspirational goal and new means to achieve it.

The emergence of the Third Way and its continental variants marked the end of free-market dominance. But the way ahead is not to navigate a middle course between the old left and the new right, the community and the market. The way ahead is to adopt a different destination altogether. The goal of politics in the twenty-first century should be to create societies which maximise knowledge, the wellspring of economic growth and democratic self-governance. Markets and communities, companies and social institutions should be devoted to that larger goal. Finance and social capital should be harnessed to the goal of advancing and spreading knowledge. That will make us better off, put us more in charge of our lives and make us better able to look after ourselves.

The free-market agenda has run out of steam. Communitarianism is fraught with difficulty: when it is not vague it sounds authoritarian. The goal of becoming a knowledge-driven society, however, is radical and emancipatory. It has far-reaching implications for how companies are owned, organised and managed; the ways in which rewards are distributed to match talent, creativity and contribution; how education, learning and research is organised; the constitution of the welfare state and the political system. Knowledge is our most precious resource: we should organise society to maximise its creation and use. Our aim should not be a Third Way to balance the demands of the market against those of the community. Our aim should be to harness the power of markets and community to the more fundamental goal of creating and spreading knowledge.